FCC Unveils Draft Order to Combat New Access Stimulation Schemes

On March 30, the FCC released a draft order for consideration at its April 20 public meeting that is intended to foreclose a new method for evading the Commission's rules and arbitraging the access charge regime.

As the draft order recounts, some local exchange carriers (LECs) in areas with high access charges partner with "free" conference call or chat line services that significantly increase the volume of terminating calls to the LECs and thereby dramatically boost the access charges that the LECs can bill to interexchange carriers (IXCs). Access charges are supposed to cover the LECs' costs of providing service. But access stimulation schemes unnecessarily raise the costs for IXCs – as well as their customers – and such schemes unjustly enrich the LECs and their call service partners.  

 

The tactics employed by arbitragers change over time, requiring periodic updates of the rules to curb access stimulation. According to the draft order, certain LECs have inserted Internet Enabled Protocol Service (IPES) Providers into the call pathway for these conference call and call services. Apparently, some LECs have converted traditional competitive LEC numbers into IPES numbers in order to claim that the Commission's 2019 order does not apply to them. The Commission's draft order would address this. If adopted by the Commission, the draft order would provide that "when traffic is delivered to an IPES Provider by a LEC or an Intermediate Access Provider and the terminating-to-originating traffic ratios of the IPES Provider meet or exceed the triggers in the existing Access Stimulation Rules, the IPES Provider will be deemed to be engaged in access stimulation."

 

The Commission's draft order appears a reasonable and necessary step to halt further gaming of the access charge regime. (For further background, see my July 2022 blog post.)

FCC Proposes Rule Clarifications to Stop Gaming of the Access Charge System

On July 14, the FCC voted to adopt a Notice of Proposed Rulemaking to address a new form of access stimulation arbitrage of the intercarrier compensation system that allegedly involves involving call flow IP enabled (IPES) Providers. 

Access charges are a vestige of the legacy intercarrier compensation system. As the Commission's Notice points out, access charges were intended to compensate carriers for use of their networks by other carriers. Although the rates were once cost-based and tied to normal call traffic volumes, they have since been capped. Some local carriers have exploited this by artificially stimulating terminating calls through arrangements with high-volume calling services such as "free" conference calling services and chat lines. According to the Notice, the resulting high call volumes generate revenues far in excess of costs that the access charges were designed to cover.

In its 2011 USF/ICC Transformation Order, the Commission adopted rules to stop the problem of access stimulation (also called "traffic pumping") for those terminating tandem switching and transport services that have not transitioned to bill-and-keep. (The problem was subject of a December 2010 blog post). And in 2019, the Commission updated those rules to prevent new arbitrager tactics. The update to those rules was upheld by the D.C. Circuit in 2021.

Based on input from interexchange carriers (IXCs), the Commission's Notice suggests the rules need to be clarified once more to prohibit new forms of access stimulation involving call flow IP enabled (IPES) Providers. Apparently, some IPES Providers have claimed that the Commission's Access Stimulation Rules do not apply to voice traffic that terminates to "IPES numbers." 

 

To address this apparent problem, the Commission's Notice states: 

[W]e propose that when traffic is delivered to an IPES Provider by a LEC or an Intermediate Access Provider and the terminating-to-originating traffic ratios of the IPES Provider exceed the triggers in the Access Stimulation Rules, the IPES Provider will be deemed to be engaged in access stimulation. In such cases, we propose that the Intermediate Access Provider would be prohibited from imposing tariffed terminating tandem switching and transport access charges on IXCs sending traffic to the IPES Provider or the IPES Provider’s end-user customer. 

To be sure, access stimulation is a complicated and even arcane subject. But there is no justification for gaming the intercarrier compensation system and sticking interexchange carriers with bogus charges. If IPES Provider-related arbitrage is taking place as alleged, then some kind of clarification of the rules by the Commission is in order. To that end, the Commission's vote to approve the Notice makes good sense.  

Court Upholds FCC Efforts to Combat New Forms of Access Arbitrage

On July 7, the U.S. Court of Appeals for the D.C. Circuit upheld the FCC's 2019 Eliminate Access Arbitrage Order to combat gaming of the access charge system by competitive carriers that route calls to rural areas and encourage toll-free conference call centers operate in those areas. The order is intended to counteract unintended incentives for access stimulation schemes caused by peculiarities of the interstate access. The court observed: 

As a result of these incentives, some sparsely populated rural areas receive a disproportionate and overwhelming number of calls. The Commission credited AT&T's observation, for instance, that twice as many calling minutes were routed in a month to Redfield, South Dakota (population 2,300) and one end office as were routed to Verizon's facilities in New York City (population 8,500,000) and 90 end offices. Similarly, Sprint explained that Iowa, with 1% of the U.S. population, accounts for 48% of Sprint’s access fee payments. In addition to higher fees, the Commission notes that access stimulation may result in overloaded networks, call blocking, and dropped calls. 

In Great Lakes Communication Corp. v. FCC, a unanimous panel of the D.C. Circuit rejected Administrative Procedure Act-related challenges to the 2019 Order. The court concluded, the order was within the scope of the Commission's authority, it was reasonable, and it was a logical outgrowth of the notice of rulemaking. 

Roundup of Recent FCC Reform Actions

At its October 25 public meeting, the FCC took a number of actions, including a vote to approve its Effective Competition Order. This order was discussed in My Perspectives from FSF Scholars paper, "FCC Action Would Finally Eliminate Local Cable Rate Regulation." Additionally, the order is the subject of Free State Foundation President Randolph May's Media Advisory from October 4. Given the choice of video services consumers have today, the Commission's grant of relief from the last remains of early 90s-era local cable rate regulation is welcome.

Also at its October 25 public meeting, the Commission voted to approve a declaratory ruling that provides parity and prohibits discriminatory fees on VoIP services. My October 17 blog post discussed that ruling.  

At its September 26 public meeting, the Commission approved an order eliminating forms of access arbitrage involving the intercarrier compensation system. Prior blog posts called attention to that order. 

FCC to Vote on Proposed Rules to Stop Access Arbitrage Schemes

At its September 26 public meeting, the FCC will vote on a proposed rulemaking to eliminate access stimulation arbitrage schemes. I called attention to this proposal in a May 2018 blog post. There is no good reason for the Commission to permit abuses of the intercarrier compensation system such as access stimulation. The Commission's proposed rule changes are sensibly targeted to the problem and deserve agency approval.

FCC Proposal Would Address New Forms of Access Arbitrage

One of the items on tap for the FCC’s June 7 public meeting is a draft proposed rulemaking that addresses access arbitrage abuse of the intercarrier compensation (IC) system. The IC system is premised on the basic idea that rural local exchange carriers have small customer bases and correspondingly small amounts of per-minute traffic that are terminated on their networks. As the Commission’s proposal observes:

Access stimulation (also known as traffic pumping) occurs when a local exchange carrier (LEC) with relatively-high switched access rates enters into an arrangement to terminate calls—often in a remote area—for an entity with a high call volume operation, such as a chat line, adult entertainment calls, and “free” conference calls, collectively high call volume services. 

Access stimulation thereby takes advantage of the IC system. Back in 2010, my blog post briefly explained: "FCC Needs Fast-Track Fix to Stop Traffic Pumping." The Commission made such fixes as part of its USF/ICC Transformation Order (2011). However, the Commission’s proposal points out that such arbitrage still takes place:

To circumvent the Commission’s rules, access-stimulating LECs have adjusted their practices, and now they support such services by interposing intermediate providers of switched access service not subject to the Commission’s existing access stimulation rules in the call route, thereby increasing the access charges interexchange carriers (IXCs) must pay. 

The Commission’s draft proposal seeks “to eliminate financial incentives to engage in access stimulation.” This draft proposal seeks a worthy end in eliminating new access arbitrage methods, and the Commission should approve its release for public comment.